The Ambassador in the United Kingdom ( Kennedy ) to the Secretary of State

No. 157

Sir: I have the honor to report that, in the course of a conversation about other i matters, Sir Frederick Leith-Ross reiterated the statement reported in the Embassy’s 236, March 23, 1 p.m. He went on to say that there were now 170,000 coolies working on the Burma-Yunan road which was scheduled to take three and would, in fact, only take five months to complete. This added channel of communication should prove quite helpful to China, which at the moment was receiving most of its munitions from Europe via French Indo-China by road or by rail. Leith-Ross said that Chiang Kai-shek had six months’ supply of munitions and he was now also getting supplies from Russia, including some quite useful tanks. Nevertheless the Chinese, through Dr. Sun-Fo,94 were pressing hard for money with which to purchase further supplies.

Leith-Ross inquired about our purchases of Chinese silver and asked whether our action as regards Mexico would affect the position. He [Page 531] said that he personally wished the British Government could undertake similar purchases but when it was suggested that the Government of India could do so (paragraph 2, Embassy’s 267, March 30, 7 p.m.95), he said that India already had more silver than it wanted. Leith-Ross explained that the offers which the Chinese had made here as regards silver were on the basis of pledged silver as security, and he therefore wondered whether American arrangements with the Chinese precluded them from selling silver on the market or elsewhere. He did not indicate that the British Government was prepared to buy silver, but he implied that it certainly could not consider entering into transactions on the basis of pledged silver for that would mean a loan, which was out of the question since it would require Parliamentary sanction.

Leith-Ross seemed both pleased and encouraged at the resistance the Chinese had offered. He also said that in his opinion they had done a commendable job as regards their currency: it had been held a very long time under trying conditions, and was only now slipping. He expressed the hope that the foreign banks would take some risks and help the Chinese by not attempting to cover themselves against every contingency. For instance, small transactions now affected the exchange rate and, therefore, it would be well if the foreign banks would carry small foreign exchange transactions between allotments.

Respectfully yours,

For the Ambassador:
Herschel V. Johnson

Counselor of Embassy
  1. President of the Chinese Legislative Yuan.
  2. Not printed.